HUD tak­ing a closer look at ‘dis­parate im­pact’ rule

Courts have val­i­dated the le­gal the­ory be­hind pun­ish­ing lenders for un­in­ten­tional dis­crim­i­na­tion, but the Trump ad­min­is­tra­tion has shown in­ter­est in re­vis­ing the Obama-era pol­icy.

National Mortgage News - - Contents - By Han­nah Lang

The De­part­ment of Hous­ing and Ur­ban De­vel­op­ment has launched a process to amend its use of the “dis­parate im­pact” stan­dard in fair lend­ing rules.

The le­gal stan­dard, which can be used to pun­ish lenders for dis­crim­i­na­tory ef­fects even if none were in­tended, has long been un­pop­u­lar with banks. In 2015, the U. S. Supreme Court de­cided that such a stan­dard does ap­ply un­der the Fair Hous­ing Act, but the left it to HUD to de­ter­mine if changes were to its dis­parate im­pact rule was nec­es­sary.

HUD re­leased six ques­tions for pub­lic com­ment in an ad­vance no­tice of pro­posed rule­mak­ing. Among the queries were whether the prior rule, which was writ­ten in 2013 and re­vised in 2016 un­der the Obama ad­min­is­tra­tion, could be changed “that could add to the clar­ity, re­duce un­cer­tainty, de­crease reg­u­la­tory bur­den, or oth­er­wise as­sist the reg­u­lated en­ti­ties and other mem­bers of the pub­lic in de­ter­min­ing what is law­ful?”

While the court rul­ing was seen as a vic­tory for sup­port­ers of dis­parate im­pact, it placed the bur­den of proof in dis­parate im­pact cases on the plain­tiffs. HUD’s dis­parate im­pact rule is cur­rently in­de­pen­dent of the Fair Hous­ing Act, and the de­part­ment is re­view­ing the rule to de­cide if any changes are nec­es­sary in light of the court’s rul­ing.

“As HUD con­ducts its re­view, it is so­lic­it­ing pub­lic com­ment on the dis­parate im­pact stan­dard set forth in the fi­nal rule and sup­ple­ment, the bur­den- shift­ing ap­proach, the rel­e­vant def­i­ni­tions, the cau­sa­tion stan­dard and whether changes to these or other pro­vi­sions of the rule would be ap­pro­pri­ate,” HUD said in the ANPR.

In Oc­to­ber, the Trea­sury De­part­ment re­leased a re­port call­ing for HUD to re­ex­am­ine its use of the dis­parate im­pact rule, ques­tion­ing whether it is con­sis­tent with state law and the McCar­ranFer­gu­son Act, which gave states free­dom to reg­u­late the busi­ness of in­surance with­out fed­eral in­ter­fer­ence.

“HUD should also re­con­sider whether such a rule would have a dis­rup­tive ef­fect on the avail­abil­ity of home­own­ers in­surance and whether the rule is rec­on­cil­able with ac­tu­ar­i­ally sound prin­ci­ples,” the re­port stated.

In its no­tice, re­leased June 19, the de­part­ment asked the pub­lic to weigh in on the clar­ity of the rule, com­po­nents of the bur­den- shift­ing frame­work, the def­i­ni­tion of “dis­crim­i­na­tory ef­fect” and whether the rule should pro­vide de­fenses or safe har­bors to claims of dis­parate im­pact li­a­bil­ity. The pub­lic will have 60 days to com­ment.

Be­fore he was the cur­rent HUD sec­re­tary, Ben Carson wrote an op-ed in 2015 not­ing “un­in­tended con­se­quences” from dis­parate im­pact poli­cies.

“These govern­ment en­gi­neered at­tempts to leg­is­late racial equal­ity cre­ate con­se­quences that of­ten make mat­ters worse,” he wrote in an op-ed in the Wash­ing­ton Times.

“There are rea­son­able ways to use hous­ing pol­icy to en­hance the op­por­tu­ni­ties avail­able to lower-in­come cit­i­zens, but based on the his­tory of failed so­cial­ist ex­per­i­ments in this coun­try, en­trust­ing the govern­ment to get it right can prove down­right dan­ger­ous.”

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